Russian inflation to hit record low this year before 2018 rebound: Reuters poll

MOSCOW (Reuters) - Russia inflation is seen slowing to a record low by the end of the year before rebounding to near the central bank’s targeted level of 4 percent in 2018, a Reuters poll showed on Thursday.

The forecasts of analysts and economists would leave room for the Russian central bank to further lower its key rate, after cutting it from 10 percent to 8.25 percent so far this year.

A monetary easing cycle became possible this year as Russian annual inflation, once stubbornly high, has tumbled to post-Soviet lows. The central bank said in October it would consider lowering rates further in coming months.

The median forecast of 20 analysts and economists polled by Reuters in the past week was for 2017 annual inflation at 2.9 percent, compared with the 3.3 percent seen a month earlier.

Inflation is then expected to accelerate to 3.8 percent in 2018, the poll showed, on the back of increased price growth as consumer demand recovers.

“With current factors, such as stable oil prices, the rouble rate and a moderate growth in economic activity, being maintained, our models show an average level of inflation would be below the central bank’s target,” said Danske Bank analyst Vladimir Miklashevsky.

The central bank said on Tuesday inflation expectations among households fell to all-time lows in November, which analysts said would support a decision to cut rates at its next rate-setting meeting on Dec. 15.

Poll respondents forecast the Russian central bank will lower its key rate to 8.0 percent at the December meeting and then to 7.5 percent in the first half of 2018.

The declining inflation reading is a good sign for the Bank of Russia, Rosbank, a subsidiary of Societe Generale, said.

“However, the volatility of this indicator from month to month and the persistence of negative assessments creates inflationary risks, limiting a quick lowering of the key rate,” it said.

The poll also showed Russian gross domestic product (GDP) seen growing 1.7 percent in 2017 and 1.9 percent in 2018.

The World Bank said earlier this week Russia’s economy was now expected to grow faster than previously thought in the next three years on stronger consumer demand, but still faced risks from lower oil prices and further expansion of Western sanctions.

Analysts polled predicted the rouble at 60.50 against the dollar in a year from now, slightly weaker than the 58.40 seen last month. On Thursday, the rouble traded at 58.43 against the dollar RUBUTSTN=MCX.